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I'm Selling One of My Real-Money Portfolio Picks

With June's quarterly results now in, I have a fresh take on
three of my
$100,000 Portfolio
picks that I wanted to share with you.

Cree Inc. (Nasdaq:
CREE
)
,
Echelon (Nasdaq:
ELON
)
and
Exide Technologies (Nasdaq:
XIDE
)
have all announced results that reflect a very tough
economy
. Exide is in fact the stock with the most upside of this group, in
my view. But counter-intuitively, it's the stock I'm selling now.

Let me explain...

Echelon: still plenty of upside
It's no secret that all discretionary spending is being curtailed
in this tough economy. For Echelon, a provider of smart grid
technologies, this means major utilities are extremely hesitant to
commit to new investments right now.

When I bought this stock
in late March
, I noted that because of an industry slowdown, "Analysts expect
sales to grow just 8% this year to around $170 million, and even
that forecast may prove to be optimistic."

Sadly, I was more right than I realized. Echelon just announced
that customers are still holding off on major commitments, and
sales are actually likely to be lower in 2012 than they were in
2011. What I thought would be an improving picture in late 2012 or
early 2013 has now been pushed out by a few quarters -- at a
minimum. Frankly, Echelon may not deliver on the promise I laid out
for at least another year.

So is it time to sell?

No. Echelon still has $59 million in cash and only $21 million in
debt. The company's quarterly cash burn is modest, and this company
faces no sort of a financial distress. I also know that Echelon's
$150 million
market value
greatly discounts the value of the company's technology base, and I
think it is a matter of when -- not if -- this company will start
to generate solid new orders. When that phase of this company's
ongoing boom-and-bust cycle comes, this stock will likely be far
higher than it is now.

Time to book profits in Cree?
When I launched my
$100,000 Portfolio
at the start of the year, I moved quickly to make sure I owned a
piece of one of the most exciting multi-year growth opportunities
out there. LED lighting maker
Cree, Inc. (Nasdaq:
CREE
)
. As
I noted back then
, Cree possessed one of the most dynamic business models I've come
across in a while. The fact that
shares
had fallen from $70 in early 2011 to the low $20s simply made this
stock too hard to resist.

Since then, a lot has happened. Cree has delivered slightly
sub-par quarterly results -- three times in a row -- and the
guidance for the next quarter is a bit weak as well. Moreover, the
global economy now looks far worse than it did at the start of the
year, likely slowing the adoption of LED technology.

The fact that the stock is up more than 10% since I bought it --
despite the headwinds -- might be grounds enough to book profits.
But I'm resisting the urge.

That's because the long-term outlook for LEDs remains quite
bright (if you'll pardon the pun), and I still think this stock has
50% or even 100% upside when the inflection point in demand for
this technology finally arrives. The fact that a strong
balance sheet
and Cree's technology leadership in the industry also tells me that
shares are unlikely to fall below the low $20s. In effect, this is
still a lower-risk, high-reward set-up, despite the dowdy 2012
economic picture.

Exide -- time to sell
Yet it's the third pick, battery maker Exide Technologies, that has
me growing concerned. Recently-released quarterly results represent
a clear step back from the March quarter results I discussed
in this article
.

The company's expenses involved with the recycling of lead
remain too high, which is keeping Exide in a dicey financial state.
The fact that Exide still carries more than $750 million in debt is
precisely the financial risk I don't want to be exposed to in this
economy. If the economy gets worse, will the company generate
enough
cash flow
to maintain financial covenants? As it stands, Exide has generated
$16 million in
operating income
over the past six months but paid out $33 million in interest
expense. That can't go on forever.

Make no mistake... I think Exide's management team is doing an
excellent job in a very tough environment. I also think that with a
few breaks in terms of lead recycling costs and a pick-up in
battery sales, this stock could soar far higher. There's a reason
why this was a $10 stock, 200% above current levels, just 15 months
ago. Unfortunately, I don't think we'll be seeing a quick upturn in
the near-term, and the scary economy keeps me from showing deep
patience with a stock with so much debt.

Action to Take -->
I will sell 1,500 shares of Exide Technologies 48 hours after you
read this. If you want to be among the first to get updates on my
$100,000 Portfolio
holdings,
go here
to sign up for free.

-- David Sterman

David Sterman owns shares of CREE, XIDE.StreetAuthority LLC does
not hold positions in any securities mentioned in this article.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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